Working With Independent Contractor Agencies

Becoming an independent contractor has its pluses. You set the rules, you pick the clients, you get the corner office.

But being your own boss also means you’re on your own when it comes to taxes, marketing and benefits. So unless you’re already well established and particularly paperwork-savvy, you might consider contacting an independent contractor agency.

Depending on your needs, agencies can provide services to help you get started and keep you in the black. There are two ways to work with an agency: on a W-2 basis, which entails more involvement and support, or on a 1099 basis, which keeps you more independent and involves mostly marketing.

So which type of contract would suit you and your business best? Here’s the breakdown.

W-2 Basis Working for an agency “on a W-2 basis” means you’ve signed an IRS Form W-2 with the agency, effectively becoming a temporary employee. The agency will handle your federal, state and local taxes, FICA (Social Security and Medicare) and benefits like paid vacation, holidays off, educational incentives and worker’s compensation. It will also take care of marketing by recruiting business and setting you up with potential engagements, all at no cost.

“From an administrative standpoint, there are a lot of reasons people choose to go the W-2 route,” said John Estes, vice president of IT staffing agency Robert Half Technology. “A lot of people are in transition, they’re new to town, they’re trailing a spouse that has been transferred — that kind of thing. And while they may eventually want to truly go independent, they’ll go through a service like ours just to get their feet wet and learn about the market.”

However, being a temporary employee of an agency does require you to surrender some of that freedom that made you go solo in the first place.

First, the agency profits by billing the client directly and paying you a percentage of the revenue. So you can’t make as much money as you would if you booked the job by yourself.

Second, the agency will screen any and all external engagements so as to avoid any conflicts of interest.

“The extreme example I always give is: If we have you on contract with us during the day at Coca-Cola, we probably don’t want you working at Pepsi on the side,” Estes said.

He adds that you will also probably need to sign an agreement to ensure that you don’t engage in any nonagency work while you’re on an agency job.

“We don’t want [you] taking service calls or doing Web development on the side while you’re on the clock with us,” he explains.

1099 Basis Working “on a 1099 basis” means you’ve signed an IRS Form 1099-MISC with an agency. Work done on this contract is paid on an untaxed basis, thereby keeping you a free agent. The firm will still handle marketing and keep you booked with jobs, and you’ll still be required to screen your external work, but paying taxes is up to you, and you won’t participate in any employment benefits.

“They are simply making an hourly wage with us,” Estes said of 1099 contractors. “Most ICs want to stay that way [1099] because they’ve purchased their own benefits — mainly health coverage — or they don’t even need benefits: A spouse may have what they need.”

For that reason, Estes said, those who have chosen to go 1099 are usually referred to as “independent contractors,” whereas those who are working on a W-2 basis are dubbed “contractors” or “temporary employees.”

So what’s the advantage of going 1099 with an agency over being fully independent?

“The No. 1 concern with any consultant is their next engagement, their next job,” Estes said. “If someone’s already plugged into the network locally, and they don’t feel like they need our services, then they wouldn’t see a lot of value in going through us. The ones that see the value are the ones that really need help bird-dogging these engagements and figuring out where they can go.”

Finding and Booking an Agency If you think working with an agency is for you, Estes suggests checking out www.indeed.com, which includes an online search function for organizations by profession and location. You can also run Google searches for independent IT contractor agencies by city.

“Look at the postings online and look at who has the most job order activity,” Estes said.

When you’ve found an agency that you like, you can expect to come into the office and discuss your interests with the agents. They might ask you about the type of job, hours, compensation and part of town that you want. Since the marketing is free, the agents will get back to you when they have an engagement that sounds like a good fit.

The clients will either want you to start work right away, without an interview, or they’ll want to meet with you first before they give you the green light.

“But after that, really, it’s a matter of us figuring out the bill rate to the client, [getting] the pay rate all set for the candidate, and we’re ready to go,” Estes said. “It’s a pretty simple process.”